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The collapse of the tech-focused Silicon Valley Bank (SVB) has resulted in swap rates plunging 0.4% from money market rates since Thursday’s close.
Mortgage rates have been gradually falling since October last year.
In a LinkedIn post, LIFT-Mortgages managing director David Baker explains that things have slowed down over the past two weeks as several lenders have raised rates for new borrowers.
For example, on March 10, Accord Mortgages raised mortgage rates for new customers by 40 basis points, and on March 3, Nationwide raised interest rates on selected fixed-term loans, as well as new business tracking and transition products.
At the end of February, Clydesdale Bank also withdrew deals and raised rates for new customers.
Baker comments on the collapse of SVB in the US: “Sonia’s rates are down almost 0.40%, which is great news for borrowers as banks’ currency exchange costs are much cheaper today than they were at the end of last week.”
“The reason for this drop is quite simple. The market has been evaluating a number of possible base rate hikes throughout 2023 and there has been uncertainty about the expected decision of the Monetary Policy Committee (MPC) later this month.”
The next MPC meeting of the Bank of England is scheduled for March 23.
He says: “With aspects of the financial sector under clear pressure, now is not likely to be a time when central banks (especially the Fed) can count on further rate hikes, and this is calming the market.”
“I feel like we should see lower rates going forward on this news if swap rates can stay at this level (or hopefully fall).”
Clayhall Financial Services director David Conway suggests that with swap rates falling, market rates below 4% could be “extended” and could “trigger an earlier-than-expected cut in the base rate.”
“It appears that the lessons of the past about investment risk and behavior have not been learned, and as contagion is unpredictable and spreads rapidly, we will have to see what the next few days and weeks bring.”
While EHF Mortgages managing director Justin Moy says the SVB collapse could lead to a base rate cut, he doesn’t believe it will have an immediate effect.
However, Moy suggests that “the peak may come sooner than expected”.
He comments: “The maturities of overnight swaps have shown a significant decline in light of the SVB crash, enough to make everyone notice, especially since the recent trend has been up for several weeks.”
“Is it just a bounce for a few days, or have the markets pushed a bit under the ribs? Let’s see what happens in the rest of the week. It could make a big difference.”
Meanwhile, Dimora Mortgages director Jamie Lennox stresses that the collapse of the SVB “triggered a series of events” that ultimately affected the UK economy.
“In recent weeks, the US Federal Reserve has stepped up and has openly stated that they may have to raise rates higher than originally envisaged and hold them at that level for longer. This was the nail in the coffin for SVB as they hold a large amount of government bonds which are negatively impacted by rapidly rising interest rates.”
“The failure of SVB is spreading around the world and raises concerns that other banks may follow the same path. Now the US Fed may have to rethink whether they plan to raise rates, which will then take the pressure off the Bank of England to follow suit.”
“As a larger increase in the base rate now looks less likely, markets are reviewing prices in line with climate change.”
Carl Summers Financial Services financial adviser Scott Taylor-Barr says that while the event is “not a major issue” for UK markets in general, he stresses that “the fear of a repeat of 2008/2009 is what sets the background music for everything this.” “. .
Taylor-Barr explains: “The good news for the UK is that our banking sector is much more stable than in 2008/2009, so there is much less fear of a bank failure in the UK than in the US. Most likely, in the coming days, the markets will stabilize, and swaps will return to the previous level of SVB. But, as they say, when the US sneeze.
Gareth Davies, director of South Coast Mortgage Services, adds: “The challenges we’ve had at SVB show just how fragile things are. The rise in swap rates has certainly changed over the past few days, but I wouldn’t expect it to stay the same. So many factors can change a trend in the blink of an eye.”
Yesterday it was announced that HSBC has acquired SVB for £1.
The move comes after California regulators shut down the sixteenth-largest US bank on Friday, March 10, after investors withdrew money en masse.
It was the largest bank failure since 2008 and the second largest bank failure in U.S. history, with $209 billion of the firm’s assets, of which £151.6 billion was uninsured.
The bank’s interest on this side of the pond is around £5.5bn in loans and £6.7bn in deposits, distributed to more than 3,000 business clients.
HSBC said it will report the acquisition to shareholders on May 2 as part of its first-quarter results.
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